Aug. 8 (Bloomberg) -- Nippon Yusen K.K., Japan’s largest
shipping line, said development of deep-sea Brazilian oil and
Australian gas will boost drill-ship and shuttle-tanker demand,
helping the energy business post its first annual profit.

The company’s energy unit, excluding liquefied natural gas
vessels, will report an operating profit of about 5 billion yen
($52 million) in the year starting April 2015 after turning
positive this fiscal year, Hitoshi Nagasawa, energy division
head, said in an interview in Tokyo yesterday. He declined to
give a specific profit forecast for this year.

The shipping line is expanding into oil and gas development
and has added a drill ship, production vessels and tankers that
bring crude ashore to drive growth. While prices for
transporting commodities have slumped as competition increases,
demand for oil services has grown as energy companies explore in
more remote and complex areas.

Nippon Yusen predicts operating profit from the energy unit
will rise to 10 billion yen by fiscal 2020, Nagasawa said. The
Tokyo-based company became Japan’s first shipping line to take a
stake in a gas project last year when it joined Tokyo Electric
Power Co. and Mitsubishi Corp. in an Australian LNG venture.

“Shipping is a volatile market,” Nagasawa said. “We’re
targeting a more stable income portfolio. We want to move closer
upstream in the energy market.”

Earnings Forecast

Nippon Yusen reported a loss in two of the past four years
as freight rates dropped. The company expects net income of 30
billion yen this fiscal year as a weaker yen helps push up the
value of revenue from dollar contracts.

The shipping line said last month it won a contract to
operate two floating production, storage and offloading vessels
from a group led by Petroleo Brasileiro SA, Brazil’s state-controlled oil company. Nippon Yusen may double its FPSO ships
to six by 2020, Nagasawa said.

Oil companies are drilling deeper as traditional fields age
and advances in technology allow them to reach previously
inaccessible reserves. Nippon Yusen has said it’s keen to help
develop Japan’s methane hydrate deposits as it adds vessels to
drill and store oil from deep-sea wells.

Seabed Resources

Japan is seeking to develop seabed resources that may be
valued at 300 trillion yen, the nation’s Trade Ministry said in
2011. Reserves of methane hydrate gas, trapped in ice below the
seabed, are valued at about 120 trillion yen, according figures
from the Japan Project-Industry Council.

The country, which buys about 6 trillion yen of LNG a year
from abroad, could eventually replace those imports with gas
mined from its own waters if development proves feasible,
Nagasawa said. Nippon Yusen, which is the largest listed
operator of LNG vessels, also plans to expand its fleet of the
vessels to 100 by 2020, from 66 now, he said.

“If we could develop Japan’s methane hydrate then the
division’s earnings could skyrocket,” he said. “It all depends
on whether the costs to develop it make sense.”